Is It Too Late To Buy Bovis Homes Group plc, Costain Group PLC And Clarkson PLC?

Roland Head takes a look at the latest updates from Bovis Homes Group plc (LON:BVS), Costain Group PLC (LON:COST) and Clarkson PLC (LON:CKN).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Bovis Homes Group (LSE: BVS) and Clarkson (LSE: CKN) have fallen sharply today after publishing their latest results, while Costain Group (LSE: COST) has delivered a modest gain on acquisition news.

All three firms are trading close to multi-year highs.

Long-term investors have enjoyed big gains, but is it now too late to buy into these cyclical stocks?

Bovis Homes

Profits at housebuilder Bovis Homes rose by 9% to £56m during the first half of 2015, according to the firm’s interim results, which were published this morning. The average sale price has risen by 10% to £264,200 over the last year, while completions hit a new record of 1,525 homes.

Yet despite all of this and a 14% hike in the interim dividend, which rose to 13.7p per share, Bovis shares are down by more than 4% at the time of writing.

One possible explanation is that with rising interest rates looming on the horizon, investors are becoming wary of housebuilders. Bovis’s performance is not outstanding, either. All the other big housebuilders are delivering similar results.

A concern, in my view, is that Bovis has joined the list of housebuilders using increased debt to add to its land bank. Although the firm’s level of net debt remains relatively low, at £58.8m, it’s almost 30% higher than at the same point last year (£45.3m).

Housebuilders are extremely cyclical. While Bovis shares only trade on a 2015 forecast P/E of 12, they trade on 15 times 2014 earnings and 26 times 2013 earnings.

I’m not sure now is a good time to buy, although I probably wouldn’t sell just yet.

Costain

Mid-cap construction and engineering firm Costain announced the acquisition of Rhead Group Holdings this morning, a programme management consultancy. This is a key area for Costain, whose strategy is to focus on larger, more complex projects in which it can take a leading role.

Costain’s shares have climbed 22% so far this year, against a gain of just 1.5% for the FTSE All-Share index. They now trade on a 2015 forecast P/E of 16.5, falling to 14.5 in 2016. The prospective dividend yield is a fairly average 3.0%.

Although this valuation doesn’t seem especially cheap, I believe Costain’s strategy of focusing on high-value infrastructure projects could see the firm’s profit margins and sales increase over the next few years.

We’ll find out more on Thursday when the firm publishes its interim results, but in my view, Costain remains a reasonable buy.

Clarkson

Shares in shipping broker Clarkson fell by as much as 10% to 2,450p this morning, after the firm said market conditions were “challenging”. Clarkson also warned that profits would be more second-half weighted than usual. This is sometimes a sign that profits will miss expectations for the full year.

Although underlying pre-tax profit rose by 49% to £23.6m, Clarkson’s adjusted earnings per share fell from 62.2p to 54.3p. This was due to the additional shares issued to fund the acquisition of peer RS Platou, which completed earlier this year.

Having risen by 180% over the last five years, Clarkson shares currently trade on a 2015 forecast P/E of 16.5, with a prospective yield of 2.9%.

I wouldn’t rush to buy at this price.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Two white male workmen working on site at an oil rig
Investing Articles

Shell hints at UK exit: will the BP share price take a hit?

I’m checking the pulse of the BP share price after UK markets reeled recently at the mere thought of FTSE…

Read more »

Investing Articles

Why I’m confident Tesco shares can provide a reliable income for investors

This FTSE 100 stalwart generated £2bn of surplus cash last year. Roland Head thinks Tesco shares look like a solid…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

£20,000 in savings? I’d buy 532 shares of this FTSE 100 stock to aim for a £10,100 second income

Stephen Wright thinks an unusually high dividend yield means Unilever shares could be a great opportunity for investors looking to…

Read more »

Investing Articles

Everyone’s talking about AI again! Which FTSE 100 shares can I buy for exposure?

Our writer highlights a number of FTSE 100 stocks that offer different ways of investing in the artificial intelligence revolution.

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

3 top US dividend stocks for value investors to consider in 2024

I’m searching far and wide to find the best dividend stocks that money can buy. Do the Americans have more…

Read more »

Investing Articles

1 FTSE dividend stock I’d put 100% of my money into for passive income!

If I could invest in just one stock to generate a regular passive income stream, I'd choose this FTSE 100…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

Forecasts are down, but I see a bright future for FTSE 100 dividend stocks

Cash forecasts for UK dividend stocks are falling... time to panic! Actually, no. I reckon the future has never looked…

Read more »

Young female analyst working at her desk in the office
Investing Articles

Down 13% in April, AIM stock YouGov now looks like a top-notch bargain

YouGov is an AIM stock that has fallen into potential bargain territory. Its vast quantity of data sets it up…

Read more »